Cash for Clunkers, So Let’s Burn Down Homes, Too!

So the government has launched another wildly popular subsidy program with its Cash for Clunkers program, offering consumers up to $4500 for trading in their classic cars for purchasing a new one. In fact, the program is so popular that more than 250,000 trades have already been made and the original $1 billion earmarked by Congress spent in days. Uncle Sam will just request a credit increase on his credit card, though, potentially finding another $2 billion to keep the program going. Reasoning: trading in old cars for new ones creates consumption, which trickles-down income throughout the automobile industry network of suppliers and manufacturers. Plus, it preserves jobs and cleans the air. Never mind those trades going to “foreign” car companies,or that $1 billion is a pittance when spread across the automobile “industry.” Still, it got me thinking. Why not copy the Cash for Clunkers program and apply it to the housing industry by paying people to tear down their used homes?

Look at it this way: It costs about $20,000 to tear down a home. That’s about four clunker-car trades. But the money would be so much better spent, with greater trickle-down effects in the housing sector (if you believe in that stuff). The housing industry is far bigger than the automobile industry, considering the suppliers, builders, salespeople, maintenance, repair and improvement industries combined. Plus, the total dollar value of housing far exceeds autos, as a segment of the economy. So if we’re going to spend a few billion improving the economy in direct handouts, it makes sense to put it directly into the housing market.

With Cash for Clunkers, the subsidy changes the supply and demand curve by “spurring” consumption. Offering a massive “discount” to the consumer, people who might have purchased a new car in the next six to twelve months are spending money today. While that does increase the dollar circulation, it also distorts the cost of autos. Car dealers have inventory that is suddenly worth $4500 more (they know free money is coming, so they can mark up – or hold off marking down). Furthermore, since the program requires that clunckers are destroyed – car dealers must pour destructive liquids into the engines so they cannot possibly be resold – the program distorts the “resale” lower-cost used car market. This will further push up the value of new cars, and poorer households that typically purchase used cars can take public transportation to save energy and money anyway.

What a smart plan: Get some people to spend money, raise the prices of the commodity (new or used) and get poor people to take the solar powered bus.

So why not do the same things with the struggling housing industry, too?

Start by offering a government subsidy for tearing down used homes. They are so energy inefficient anyway – and millions are still “unaffordable” or empty (foreclosed), so who cares? Let’s offer a subsidy to owners – whether consumers or banks – to destroy these Clunker Homes. At $20k per tear down and $2 billion Greenbacks, we could easily demolish 100,000 homes. If we just burn them down or use dynomite, maybe more. If we recycle the scrap, we can create a self-funding program to tear down the million or more excess homes that are depressing house prices.

Brilliant!

New home prices will rise. “Used” home prices will soar, too. Poorer consumers unable to afford either can live in Green public housing or just rent. The important point is that we’ll be giving the housing industry money to “spread around,” especially to the depressed demolition sector. And we’ll create all those the wonderful jobs in the rake-and-shovel labor market to clean up the mess!

Spending money to demolish homes will create housing scarcity, which will nicely drive up prices. Everyone keeps saying that only price stability in the housing sector will save the economy, right? So sellers will get more money for their homes and we’ll recreate the appreciation spike to save those borrowers who were duped by predatory lenders into interest-only loans from becoming upside down on their mortgages.

If we’re really lucky, we might experience some “unexpected” results, such as accidentally destroying too many homes (maybe a run-away fire in Southern California?). That would mean – wow – new homes to be built, saving jobs with builders, suppliers, laborers. Construction materials would rise in demand – their prices will rise, too, saving a lot of retirement accounts that invested in commodities. Lumber and steel companies would sell their excess inventory, and more sales mean more jobs, right? Never mind the higher costs, because those “profits” will either be taxed away or transferred to laborers through the new minimum wage laws.

More economic recovery!

With Cash for Demolition, unemployment would be solved: There will be lots of jobs tearing down neighborhoods, shovelling away debris or restoring open space to its rightful place on the empty lots. We can only imagine a stream of grateful Wall Street laborers shedding their three-piece-suits and Blackberries for sweatbands and shovels. Each dollar spent on the Cash for Demolition program would offset falling prices, expand employment and trickle throughout the housing industry. Even rental landlords would benefit, as fewer used homes meant more renters – and that would mean more jobs for superintendents and landscapers and cleaning ladies.

What a lovely, circular economic recovery we’d get! Cash for Demolition would be even more environmentally friendly than trading in smog-producing clunkers, too. Everyone knows how awful housing is for the environment. It’s ugly, all that urban sprawl. We kill trees and waste water building homes with lumber and concrete. Home heating spews pollution into the atmosphere, and toilets and ice makers just waste water. Homes use electricity, too, which means burning coal and natural gas. Tear down homes eliminates garages, which means less places to store those foreign-fuel-consuming cars.

What a win-win we’ll for Mother Nature and the economy!

Yet something doesn’t seem right… I can’t quite put my finger on it. In its infinite wisdom, wouldn’t Congress have already seen this answer? It seems like the perfect magic formula: offer tax subsidies for people to consume. Why stop at cars and homes? Why not computers, cell phones, even energy-inefficient clothing? With a Treasury Credit Card, can’t everybody get a new pair of shoes?

Still, I think we should try it. Cash for Home Demolition would definitely be a hit. What better vision of the future can you think of from our government than using tax money to destroy the two icons of America: the classic car and the family home.

We took a page out of the automotive play book for mortgage protection in the event of a job loss. Coldwell Banker negotiated the deal with Paycheck Guardian as the underwriter – in less than 45 days the program was pulled by the underwriter. Apparently too successful. So much for these consumer protection programs that actually work!

We took a page out of the automotive play book for mortgage protection in the event of a job loss. Coldwell Banker negotiated the deal with Paycheck Guardian as the underwriter – in less than 45 days the program was pulled by the underwriter. Apparently too successful. So much for these consumer protection programs that actually work!

Matthew Ferrara

Thanks for your comments, Sybil. It really does astonish me that, during a recession, where employment is tenuous, anyone would try to offer such “protections” and insurances. It just seems like yet another way we try to “game” the market. Until we learn that the market has rules, that it cannot be fooled, and that those who learn the rules best and play by them will succeed best, I think we will keep getting ourselves into these crazy loops. And prolonging the actual recovery.

Thanks again for reading and commenting! I appreciate it!

Matthew Ferrara

Thanks for your comments, Sybil. It really does astonish me that, during a recession, where employment is tenuous, anyone would try to offer such “protections” and insurances. It just seems like yet another way we try to “game” the market. Until we learn that the market has rules, that it cannot be fooled, and that those who learn the rules best and play by them will succeed best, I think we will keep getting ourselves into these crazy loops. And prolonging the actual recovery.

Hey Matt, I was thinking the same thing. Given the number of disgusting bank owned properties and the many practically uninhabitable homes I have seen lately we should call the program “Dollars for Dump” and tear these crack homes down. Then we can do a “Revenue for RV’s” and give more incentives to by motor homes which the owners could park on all the vacant lots we have created. That way when things get real bad we can just drive up to Canada. Now all we need to do is print some more money…

Hey Matt, I was thinking the same thing. Given the number of disgusting bank owned properties and the many practically uninhabitable homes I have seen lately we should call the program “Dollars for Dump” and tear these crack homes down. Then we can do a “Revenue for RV’s” and give more incentives to by motor homes which the owners could park on all the vacant lots we have created. That way when things get real bad we can just drive up to Canada. Now all we need to do is print some more money…

Matthew Ferrara

Hey Ray – great idea! Although I think I’d prefer Duck Boats over RV’s so that we can drive right out into the ocean and head to an island, while we watch Atlantis sink behind us… Funny how history repeats itself…

Matthew Ferrara

Hey Ray – great idea! Although I think I’d prefer Duck Boats over RV’s so that we can drive right out into the ocean and head to an island, while we watch Atlantis sink behind us… Funny how history repeats itself…

I was thinking the same thing last week with the cars how freaking absurd! Definitely got a smile out of me with the idea though. I think the land is obviously worth more than with these houses rotting on the lots anyway. So I guess the new pitch should be ” Nice 20,000 square foot lot –Free House” use your American Dream Fund to get yourself the best of both worlds

I was thinking the same thing last week with the cars how freaking absurd! Definitely got a smile out of me with the idea though. I think the land is obviously worth more than with these houses rotting on the lots anyway. So I guess the new pitch should be ” Nice 20,000 square foot lot –Free House” use your American Dream Fund to get yourself the best of both worlds

At first when I read this post I just chuckled and gave you a lot of credit for a well wriltten post. But your ideas took root in my conscienceness and got stuck there.
I can see benefits in all directions from a program such as this. You mentioned a good many of them — maybe even all of them — and I personally would be willing to get behind a program to promote this idea. How would we go about it? I live in Akron, Ohio where we have too many houses for the number of residents, and it currently takes waaaay too long to get to a point where the excess houses can be torn down.

At first when I read this post I just chuckled and gave you a lot of credit for a well wriltten post. But your ideas took root in my conscienceness and got stuck there.
I can see benefits in all directions from a program such as this. You mentioned a good many of them — maybe even all of them — and I personally would be willing to get behind a program to promote this idea. How would we go about it? I live in Akron, Ohio where we have too many houses for the number of residents, and it currently takes waaaay too long to get to a point where the excess houses can be torn down.